Making the Most of your Empty Nest Years

 In a recent meeting, I asked a client how their year had been and they exclaimed:

“It’s like being in college, only with money!”

The words struck a chord. After raising two children, educating them, and seeing them move away (fully employed) my clients were busy starting their empty nest years.  As they explained, after years of doing the right things financially, they were ready and excited for the next chapter in their lives before retiring.  Fortunately, they are healthy, both physically and financially, and have begun weaving more leisure and travel into their schedules.  Their new lifestyle is a fine reward for years of delayed gratification in some areas and I couldn’t be happier for them. 

Planning for the Empty Nest

Here are some of the keys to living well during the empty nest years:

• Make time to plan – ideally over multiple years
• Spend less than you earn – this may be financial planning 101 but it takes commitment and discipline
• Save for college – it is not always necessary to save 100% of the costs, but going into the college tuition years with substantial savings (i.e. 529 plan) will allow you and your kids to avoid significant debt
• Save for your own retirement – systematically contribute to your 401k, 403b or other tax advantaged plan

My client’s story also gave me reason to pause and reflect, or plan, on what might be “next” for our family.  While I am used to dispensing advice for a living and helping others plan an ideal life, I am fortunate to have so many clients and meetings like the above to inspire me to continuously think about and plan for a life well lived.  While my wife Jen and I (we celebrated our 22^nd wedding anniversary this month) are not quite empty nesters, two of our three children will be full time college students living on their own for most of the year.

Wyman Nest Dwindles

Our oldest Matt will be in his third year at The University of Kansas.  Matt, a soccer player in high school, walked on to the football team and won the starting position last season.  His year was highlighted by kicking a game-winning 52-yard field goal as time expired.  Matt will return to KU in the fall for his second season after interning here at The Center this summer. 

http://www.youtube.com/watch?v=HyYWj5lsFmk

Our middle child, Jack, just graduated from Bloomfield Hills High School, the first ever class at the merged high school.  Jack finished a stellar baseball season as his team won their district and he was named team MVP, All League and All District as a pitcher and third baseman.  Jack is undecided on his college choice but has been accepted to Albion College and Belmont University in Nashville.

http://www.miprepzone.com/oakland/results.asp?ID=13633

Our youngest, Kacy, just finished 5^th grade and continues to be an inspiration as she manages a rare disease called Cystinosis.  A highlight of Kacy’s year was being to be Principal for the Day at Bloomfield Hills Middle School where extra lunch time and recess was the call of the day! Kacy also enjoys swimming year round with a little dance thrown in for variety.

Words of encouragement from our principal....

"Good morning BHMS! Please excuse this interruption. This is your Principal for the Day, Kacy Wyman. I just wanted to wish you a great day - have fun and work hard!"

Jen and I look forward to our empty nest years and living the “college life” like my clients described.  However, for now, we are mostly excited to be traveling to Kansas and other parts of the country for football and baseball as well as being with friends at Wing Lake beach or Kacy’s swim meets. 

From our family to yours, have a great summer and take pause to plan what’s “next” for you and yours :)

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-019071

Paying for College at Your Expense

We all want the best for our children.  In an ideal world, if we could pay for 100% of their college and allow them to graduate with no student debt, most parents would gladly do it. However, anytime you use cash flow to pay for college there is an opportunity cost.  “What else could I have done with that money if I had not used it to pay for my kid’s college?”  The simple answer is that you could be using that money now to put toward your retirement.  You can take loans for college, but you can’t take a loan for retirement.

Opportunity Cost of College Tuition

For some of you reading this, opportunity cost might seem like a foreign idea or an abstract concept that can’t be measured.  However, it is very real and although it can’t be measured to the exact penny, you can make some educated estimates about the potential growth of your savings.

For illustrative purposes, let’s take a look at a hypothetical scenario and measure the potential opportunity cost of paying for college.     

Scenario: John and Jane Smith (both age 35) have 1 son Joe Smith and intend to fully fund 4 years of undergraduate school for Joe.  Their son was born in December of 2013. John and Jane are both U of M graduates and, assuming Joe is as bright as mom and dad, they would like him to go there as well.   In any case they intend to pay for 4 years of U of M starting in 2031. The Smiths consider these costs:

• The cost of U of M for tuition, room, and board is approximately $20,000 in today’s dollars and is estimated to inflate at 6% annually over the next 18 years.

• So the Smith’s estimate the first year of college will cost $57,086, 2nd year $60,511, 3rd year $64,142, and 4th year $67,991. 

• The total estimated cost for 4 years of college is $249,730.

Adding Up the Opportunity Cost

Unfortunately, the cost doesn’t end there.  This is where the concept of opportunity costs comes in. You see, the Smiths didn’t have to set aside these funds for Joe. They could have put them in their retirement accounts instead.  To fully understand the true cost of utilizing those dollars to pay for education, you also have to measure what that money could have potentially grown to at John and Jane’s retirement age of 65.  When Joe starts college John and Jane would be 53.  That means the $249,730 they have set aside could have the opportunity to grow for another 12 years. Assuming a 6% rate of growth the hypothetical account would compound to $502,505.   John and Jane would have the opportunity to add an additional $250,000 to their retirement account.

Having said all of this I’m not advocating kicking the kids out at 18 and changing the locks.  However, I am advocating being informed about the ripple effects of the financial decisions we make.  For people under the age of 40 with no pensions (and social security looking like a shaky proposition) it is imperative that you be efficient with financial decisions.  One of the benefits of working with a professional planner is putting these decisions under a microscope and creating a plan to decide what you can truly afford to do while still maintaining your financial independence.  

Matthew Trujillo, CFP®, is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. All illustrations are hypothetical and are not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. Investing involves risk and investors may incur a profit or a loss. C14-017739

Raymond James Bank Deposit Program simplifies FDIC coverage

If you’re not familiar with the Raymond James Bank Deposit program, a quick read here could save you a big hassle. The program is designed to help you take advantage of up to $2,500,000 of FDIC coverage without putting any extra work on your plate.

What is FDIC?

The FDIC (Federal Deposit Insurance Corporation) covers cash deposit accounts, dollar for dollar, including principal and accrued interest up to a limit in the event of a bank failure.  It is funded by the premiums paid into the corporation by banks on the deposits they hold.  Historically, in the event of a failure, funds are available to depositors within days after the closing of the bank.

How much does FDIC cover?

Until October 2008 coverage was limited to $100,000 per depositor.  During the financial crisis in the fall of 2008 the government stepped in and increased the insurance limit temporarily to $250,000 to prevent bank runs from occurring as the financial crisis and subsequent bank failures accelerated.  Later in 2010 the increase in the limit was made permanent. 

How do you calculate the coverage you have?

For example, let’s say Joe has $250,000 at a bank between his checking, savings, CDs and money market accounts maximizing his coverage there.  If Joe was married to Sally, and these accounts were titled jointly, then they could have a combined coverage of up to $500,000.  The coverage is per bank meaning if Joe and Sally had $500,000 at 10 different banks they would have $5,000,000 in FDIC coverage.  But, for Joe and Sally, or anyone, having money spread out between multiple banks could be very confusing and time consuming to keep track of everything.

Gone are the days of playing games to maximize your FDIC insurance coverage on bank deposits! 

Insuring more than $250,000 per depositor

One account at Raymond James through the Raymond James Bank Deposit Program (RJBDP) can provide up to $2,500,000 ($5,000,000 for joint accounts) of total FDIC coverage.  The work is done behind the scenes by Raymond James as available cash is deposited into interest-bearing deposit accounts at up to 12 banks automatically for our clients.

Another way to qualify for more coverage is by holding deposits in different ownership categories (account types).  Below is a table of the categories and limits.  The RJBDP can then increase these limits according to the above numbers as well.

Source: Raymond James

As with all insurance, you hope you never need to use it.  Cash can play an important role in an overall financial plan and knowing it is protected can lend confidence.  When it comes to FDIC insurance coverage you likely have much more than you realize!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Laws, coverage, and program rules are subject to change. Hypothetical example is for informational purposes only, and does not represent and account or investor experience.

Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. are affiliated with Raymond James Bank, a federally chartered savings bank. Unless otherwise specified, products purchased from or held at Raymond James & Associates or Raymond James Financial Services are not insured by the FDIC, are not deposits or other obligations of Raymond James Bank, are not guaranteed by Raymond James Bank and are subject to investment risks, including possible loss of the principal invested. The FDIC insurance limit per depositor is $250,000. Coverage applies to total holdings per bank per depositor. Visit fdic.gov for more information.

Strategy for an Intra-Year Market Drop

 With minutes remaining in the game, my youth hockey team had just scored, sending the nail-biter state championship into overtime. I was 11 then, and I remember the packed stands full of parents waving signs and pom poms. The other teams were even cheering us on. Only a few minutes into overtime, I watched the puck deflect off our own player's skate into the net, ending the game and our season in agony. Through the tears and heartbreak, I'll never forget what coach said to us, "we didn't play our game." Not the most comforting line after such a loss, but it was 110% true.

That year, our team had been undefeated until our final opponent took us down. The reason we were so successful was because we had a game plan that worked for us and we stuck to it. It wasn't anything fancy; we just did the simple things really well and were consistent. If we had our backs against the wall or faced adversity during a game, we stayed true to what we knew about winning. But that's not what we did when it mattered most. We let a very good team get into our heads and it caused us to make bad decisions. We didn't stick to the game plan that had provided us with so much success through the season - something that can also easily happen to investors during a market pullback or a time where there is fear and uncertainty. 

At the Raymond James national conference in Washington D.C. in May, I listened to a JP Morgan presentation about past, present, and projected market conditions. The most intriguing fact I heard was this:

Since 1980, the average intra-year market decline has been 14.4%. However, 27 out of those 34 years, the market has closed the year positive.

So what does that tell us? To me, it highlights the importance of having a game plan and a strategy and sticking to it. The market will not always move in a straight line up like we have seen over the past few years, so being prepared for bumps along the ride is imperative. As my hockey team experienced, when you begin to deviate from a disciplined strategy, bad things can happen.

Making knee jerk decisions during difficult times can cause you to stray off your path to financial independence. This is when we, your financial planners, step in as coach to talk you through the game plan that we have helped you establish. It is a team effort and working together through the good times and bad is what we do best for our clients.

Nick Defenthaler, CFP® is a Associate Financial Planner at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

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Past performance may not be indicative of future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. C14-019163

Is 40 the “Magic” Age for Financial Planning?

When is Financial Planning, on your own or with the help of a professional, appropriate? The correct answer is you should probably begin saving the first day that you receive your first paycheck.  However, in my 23 years of experience, folks tend to get “serious” about planning near the age of 40.  I do not by any means want to discourage anyone younger than 40 to put off planning until they hit that “magic” 40 milestone. Just about anyone that has achieved financial success will tell you to start as early as possible.

Some questions and issues that the 40+ crowd might consider: 

• How much should I be saving? I have heard rules of thumb such as 10% or 20% but what does that mean for me and my specific goals?

• I’m busy. What are the options to pay bills other than the standard envelope and stamp method?

• Life insurance: Salespeople have been hounding me for years to buy life insurance. I couldn’t afford it in the past and secretly didn’t see the value, but I’m ready now. What type and amount should I get to protect my family so I am not insurance rich and cash poor?

• College: My kids are getting closer to college age. How do I pay the ever-increasing tuition?

• I am ready to invest my wealth. What are best options for me?  Should I max out my 401k or 403b or is a ROTH a better option?

• Estate planning: I’m all grow’d up now and ready (I think) to consider a Will and perhaps a Living Trust. How do I know which one I need?

• My parents are aging and I am not sure if they have the resources for their care. What should I be doing now to prepare or help them prepare?

• I have heard about the “Boomerang kids” phenomenon. Should I move to a one bedroom condo now?

• Employer retirement plans (401k/403b): Whoa, I have real money now! How should it be invested?

• I give to charities that are making a difference in the world. Is there a way to maximize my donations and perhaps even get a tax break?

• Income taxes: I don’t mind paying … I just don’t want to pay a cent more than my share. How can I limit my income tax exposure?

• If I choose to work with a professional financial planner whom should I contact? I have not have worked with a professional advisor yet so I am a bit leery, and maybe even a bit scared to share my financial picture (not sure how I stack up with others).

If you’ve been asking yourself some of these questions, no matter your age, you are ready to get “serious” about your financial life.  Think about some of the issues and questions that you find yourself facing and feel free to give me an email. If my 23 years of working with similar folks can be of help, I’d love to share my insight because you don’t need to wait for some “magic” age.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

C14-019069

Curtain Call

 The Center's Team enjoys sharing their knowledge with the press to help stories come to life, share facts and bring important topics to the forefront.  We are also honored when we are recognized by media and publications for our work and service to our profession. Here's what's new:

Financial Advisor IQ

Melissa Joy, CFP®: Melissa was quoted in Financial Advisor IQ in an article titled, Need to Fire a Fund Manger? Minimize Disruption on June 3, 2014 by Murray Coleman.

Utilizing your Financial Advisor in a Divorce

There are times in life when it’s best to just part ways. Someone once said that the most common reason of divorce was… wait for it… marriage. That’s the lighter side of what can be a very touchy subject. I recently attended a conference that gave me new insight into helping clients through the process.

Divorce Rate Statistics

Over 50% of married Americans have experienced divorce and for couples with a disabled child, the divorce rate jumps to 90%.  Experts say it comes down to stress and growing apart and divorce can provide a time to reflect and start over.

Some of these splits are amicable and, if they can be done with a clear head and fair planning, I believe that the financial costs can be reduced in a material way. But this is also a very emotional time and it’s even more difficult to keep a level head when emotions run their course. It can help to have an intermediary who understands both parties and the finances.

Dividing Assets

Consider a situation where there are multiple pensions, IRAs, retirement plans with old employers, education funding, vehicles and joint accounts … plus a home and other personal property. Well, try to take a deep breath and tackle one item at a time.  Place each item in a category and deal with them one by one (i.e. income from pensions can be handled by a lump sum, income from one spouse to another for some fixed period of time or through a Qualified Domestic Relations Order (QDRO) process). 

• Asset value differences and the tax implications can be aligned to provide for a fair split

• Qualified plans can be combined with IRAs to simplify things in some cases

• Liquidity can be generated from qualified plans without penalty

• Properties and tangible possessions can be appraised and split

• Social security differences are typical and can be managed

My best piece of advice is to talk to each other, come to an understanding of values, and arrange things fairly prior to talking with your attorney. Once you’ve done that, go and ask for their advice on what you might be missing.  If you can, utilize your Certified Financial Planner to best organize the items above because they already understand the money issues and can help to potentially reduce your legal fees considerably.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

This materials is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Raymond James does not provide tax or legal advice. C14-017271

Roth vs. Traditional IRA

 If you’re planning to use an IRA to save for retirement, but aren’t sure if Roth or Traditional is best for you, we can help sort it out. First, before we begin breaking down the pros and cons of each type of retirement account, you need to be sure that you are eligible to make contributions to these accounts.

For 2014 Roth IRA contribution rules/limits:

• For single filers the modified adjusted gross income (MAGI) is phased out between $114,000 and $129,000 (unsure what MAGI is? Click here)
• For married filing jointly the MAGI is phased out between $181,000 and $191,000
• Please keep in mind that for making contributions to this type of account it makes no difference if you are covered by a qualified plan at work (such as a 401k or 403b), you simply have to be under the income thresholds.
• Maximum contribution amount is $5,500

For 2014 Traditional IRA contributions:

• For single filers who are covered by a company retirement plan (401k, 403b etc…), in 2014 the deduction is phased out between $60,000 and $70,000 of modified adjusted gross income (MAGI).
• For married filers, if you are covered by a company retirement plan in 2014, the deduction is phased out between $96,000 and $116,000 of MAGI.
• For married filers not covered by a company plan but with a spouse who is, in 2014 the deduction for your IRA contribution is phased out between $181,000 and $191,000 of MAGI.
• Maximum contribution amount is $5,500

If you are eligible, you may be wondering which makes more sense for you?  Well, like many questions in finance the answer is…it depends! 

Roth IRA Advantage

The benefit of a Roth IRA is that the money grows tax deferred and someday, when you are over age 59.5, you can take the money out tax free.  However, in exchange for the ability to take the money out tax free, you don’t get an upfront tax deduction from the IRS.  Essentially you are paying your tax bill today rather than in the future. 

Traditional IRA Advantage

With a Traditional IRA, you get an upfront tax deduction.  For example, if a married couple filing jointly had a MAGI of $180,000, (just below the phaseout threshold), then they would probably be in a 28% marginal tax bracket.   If they made a full $5,500 Traditional IRA contribution they would save $1,540 in taxes.  To make that same $5,500 contribution to a ROTH, they would need to earn $7,040, pay the taxes, and then make the $5,500 contribution.  The drawback of the traditional IRA is that you will be taxed on it someday when you begin making withdrawals in retirement.

Pay Now or Pay Later?

The challenging part about choosing which account is right for you is that nobody has any idea what tax rates will be in the future.  If you choose to pay your tax bill now (Roth IRA), and in retirement you find yourself in a lower tax bracket, then you may have been better off going the Traditional IRA route. However, if you decide to make Traditional IRA contributions for the tax break now, and in retirement you find yourself in a higher tax bracket, then you may have been better off going with a Roth. 

How Do You Decide?

A lot of it depends on your personal situation, such as the career path you’ve chosen and your desired income in retirement. However, we typically recommend that people just starting out in their careers who will probably earn a much higher income in the future make ROTH contributions.  If you’re in the 25-28% marginal bracket, a Traditional IRA may make more sense for the immediate tax break now.  As always, before making any final decisions, it’s always a good idea to work with a qualified financial professional to help you understand what makes the most sense for you.

Matthew Trujillo, CFP®, is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted. You should discuss any tax matters with the appropriate professional.

Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-015057

Center sends team to Raymond James National Conference

If you think conference = boring, then you’re missing out on the way the Center for Financial Planning team does a conference. From our office of 18, we took 15 team members to the National Raymond James Conference in Washington, DC from May 19^th through the 22^nd. Someone had to stay behind and answer the phones! Aside from some intensely fun team bonding activities, the conference offered an eclectic mix of sessions with one overarching focus – making a difference in our clients’ financial lives.

From investment and market trends to client service refreshers, everyone on the team learned something new to bring back to the office.  We also heard about some exciting updates that are in the works from Raymond James (including electronic signatures!) and we are looking forward to their introduction in the near future.  We also used this opportunity to learn from and share with other top financial planning firms.  Bettering ourselves, our team, and our processes are never ending goals for The Center. 

It was great to spend some time outside of the office and we came back reinvigorated and ready to implement what we learned.  We also want to thank our clients for being so patient and supportive while our skeleton crew worked so hard in the office that week!

Rewriting Retirement: 5 Steps to Your Plan

Life, after work, has been completely redefined. Those leaving the 9 to 5 behind, in favor of a more relaxed, enriched or exciting lifestyle, are rewriting the meaning of retirement.  Part of the credit for retirement’s overhaul can be given to longer and healthier lifestyle trends.  Leaving the workforce does not have to be the endgame, but rather your signature version of a rich life after retirement that could last a long time!

Here are five steps to help you get ready for what comes next:

1. Create a retirement budget and track expenses

2. Shore up cash reserves

3. Know how you will deal with unexpected financial needs

4. Identify income sources that contribute to cash flow

5. Take the time to ensure that you are psychologically ready for the change of pace

On the most basic level, we all have goals and aspirations for our life after work.  Some are big, some small, but most importantly, they are unique to each retiree.   If you are stressed thinking about retirement, talk to your financial planner about the five steps above.  Take the time to double-check that you are ready for what comes next.  Today’s retirement holds the promise of being more fulfilling than ever before – but could be longer and more expensive too. 

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. C14-017445